Why Is Healthcare Price Transparency So Hard?

Few are making much progress, but a small number of hospital and health system leaders are doing their best to change price opacity.

This article appears in the March 2014 issue of HealthLeaders magazine.

Many hospital and health system CEOs are embracing the triple aim of improving the patient experience, improving the health of populations, and reducing the per capita cost of healthcare, an objective popularized by the Institute for Health Improvement.

Of the three legs of that stool, the one on reducing cost is problematic because one person's (or organization's) cost is another's profit. A major obstacle in reducing the cost of care lurks in price opacity for healthcare services, and some say that rapid consolidation in the industry is not only not helping reduce the cost of care, it's actually doing the opposite.

The reasons for such a lack of transparency are inherent in a payment system that is unlike other industries, which generally have just two parties—a buyer and seller—involved in any transaction. In healthcare, a third party is almost always involved, and despite attempts by the government to make transparent the prices it pays for a variety of healthcare services and products, commercial payers and their partners are still very reluctant to reveal what they pay organizations for their services. In fact, such disclosures are contractually prohibited in most cases—not that most hospitals and health systems have historically minded.

But with pressure for transparency mounting and with higher variance in reimbursements, some hospital executives (mainly those who think they would do well in a price and quality comparison with their competitors) are pushing for greater transparency. Many of these are organizations that have historically been squeezed by commercial plans for reimbursement concessions because they lack market leverage. Their leaders feel that if prices become more transparent, they would compare favorably in a cost contest with their bigger and more market-dominant peers. But are they on a quixotic quest?

The paradox

Getting at the true cost of healthcare and rooting out the waste that resides there is critical to changing healthcare's unsustainable cost trajectory. What hospitals pay—and charge—for medical devices is part of this calculus as well, and those contracts have similar prohibitions on hospital disclosure. One of the chief reasons for the secrecy is that it offers a competitive advantage for insurers and device makers to obscure what they pay or charge any healthcare provider because profit and loss of both the healthcare organization and, of course, the payer, can be affected by negotiations when contracts are up.

Gary Votour MHCA (3/21/2014 at 6:59 AM)
Do No Harm, or at Least Make No Profit From It When You Do. by Gary M. Votour, MHCA - -There is a really big reason why most Health Care Organizations (HCOs) do not support the changes to our health care system being driven by the Affordable Care Act... and that is that it will cut into their profits. It is time for us, as their consumers, to understand why so we can demand change. Health care in the United States is big business. As costs have been driven upward for the last fifty years, so have profits. Contrary to what many politicians like to say, the health care industry in the United States is not a free market,an economic system in which prices and wages are determined by unrestricted competition between businesses, without government regulation or fear of monopolies. In reality, the health care industry in our country has become a seller's market,a system in which goods and services are scarce and prices relatively high. (Davis, 2013) - -I am not referring to the occasional emergency room visit for a broken arm or the trip to your primary care provider for antibiotics during a relatively mild illness. In major urban and suburban areas, choices exist for those with more routine medical issues. The proliferation of "Doc in a Box" health care services, which are often franchised out like fast food restaurants, are options for those with insurance or who can self pay, and add value to their service by allowing the convenience of [INVALID]-in appointments with little or no waiting time. It is when you or someone in your life is hit with a major illness or a complicated life threatening condition that your options become narrowed to the nearby specialized care providers, and that's where free market competition ends. When it comes to specialized care it is a seller's market, and what they are selling for profit is life itself. - -It is all about the profit. We have "for-profit" hospitals and "non-profit" hospitals in this country. Study after study shows hospitals whose decisions are controlled by shareholders seeking profit do not offer services that do not make as much money, which in itself is hardly surprising. Instead, they specialize into the areas where the maximum profit from investment can be made. Hospitals which do not make a profit are more likely to offer the services most people need, like emergency rooms, preventative programs and home care based services. In fact, studies have shown that patient mortality rates increase when nonprofit hospitals switched to become profit-making, and their staff levels declined. Many politicians, sponsored by health care organizations making profit, argue that we need less government involvement, less regulation and more competition. American consumers hear arguments that more privatization and less governmental control will lead to lower costs and higher quality when it comes to the medical care we need. Unfortunately, a lot of people do not understand enough about the economy and what drives it to realize that these arguments are self-serving and spurious. (Porter, 2013) - -The reality is that HCOs make money providing treatment to patients, and there is money to be made whether the problem being treated is from an illness or from a complication cause by an error. This problem is even more of a concern when the patient has private insurance. A recent study published in the Journal of the American Medical Association (JAMA) found that when patients with private insurance had complications following surgery, hospitals made nearly $40,000 more profit than when there were no complications. For patients insured by Medicare, that profit is reduced to less than $1,800 for the same surgery with the same complications. The profit difference is because Medicare does not reimburse for overhead and fixed costs, it only pays for the items and services directly involved in a patient's care. Atul Gawande, one of the studies' co-authors and a Professor of Surgery at Harvard Medical School, said " The magnitude of the numbers was eye-popping... That's an indication of the level of perversity here. Having a complication was profitable, and fighting complications was highly unprofitable."(Shute, 2013) - -The JAMA study indicates that this the case in 90% of the hospitals in this country. The reason is that there is no financial incentive to hospitals to reduce errors. The Affordable Care Act includes changes that will make changes to the system, including reductions in payments for complication related care. A major step forward are changes to Medicare that include bundled payments, where the hospital is paid the same amount for a procedure, with or without complications. They still have to provide the care, they simply will not be reimbursed for it. Even this solution is not going to solve the problem, for hospitals will simply shift the uncharged costs to their patients with private insurance. What needs to happen is reform system wide, an adoption of a consumer driven standard that takes control of the system that is running out of control. Mark Lester, executive vice President of Texas Health Resources, was another of the JAMA studies' co-authors. "It's just more evidence that payment reform is key to health care reform. We've unmasked some hidden perverse incentives that are just part of our system.... We're all moving toward payment reform. It's happening incrementally, because it's very complex." he said. (Shute, 2013) - -I am not trying to build a case against a health care system based on profitability. In fact, profit is essential in health care as it can be used to drive innovation, research and ultimately improved levels of care. If there was no profitability in health care, there would be no doctors, no nurses and no hospitals. In order for them to defend their right to make a decent living, there must be an ethical decision about when and how that profit is made. Amesh Adja summarized this belief in his recent opposing editorial in Forbes magazine. He wrote, "For those who want to preserve and extend the advances in the standard of living that have been made possible by innovations in medicine, the moral defense of profit–against those who view profit as an evil to be banished–is a crucial and necessary step." His explanation is thorough and thought provoking. "...physicians are often considered by the public to be part of an exalted class who labor tirelessly with no thought other than serving their fellow man and are, for the most part, paid well for their sacrifice. To ascribe profit-seeking to a profession that is heralded as an embodiment of self-sacrifice would offend the sensibilities of the public and many physicians", he wrote. He is correct, and that is where the thinking needs to change. Consumers and providers both need to acknowledge that health care is built around the concept of profitability. Once we do that, we can begin to decide where it is morally acceptable to make that profit, and how much profit is enough. I am proposing that we [INVALID] complications that are caused by errors are not ethically profitable. (Adja, 2013) - -Can these changes be made without reducing the overall profitability of the health care system? Of course they can, but not without the cooperation of HCOs. - -At The Brigham and Women's Hospital (The Brigham) in Boston, MA an innovative approach to reducing errors has been introduced and we should all be watching how this unfolds. Since 2011, a monthly newsletter to its 16,000 employees called "Safety Matters" has included anonymous yet detailed accounts of patient errors and descriptions of the steps they have taken to remedy them. By providing the narrative details of specific cases where errors have been made, the leadership of The Brigham are trying to make the steps needed to solve this problem. Dr. Elizabeth Nabel, The Brigham's chief executive has said that one of her goals is to [INVALID] a more open culture around medical errors, in which staff can report them and seek help without shame. She even describes the occasion when, years ago at a different hospital, she was repairing a patient's heart valve when she accidentally punctured a ventricle of the heart with a wire. This caused bleeding and required the patient to undergo surgery. She did disclose the error to the patient but felt she had no one else she could discuss it with besides her husband. She said, "I felt very insecure and my confidence was shaken... Think about how much easier it would have been if I could have talked to my colleagues rather than living in fear I would get stabbed in the back because I made this mistake." (Kowalczyk, 2013) - -Janet Barnes, The Brigham's executive director of compliance, was at first hesitant about the project. Concerned that disclosing errors in a public forum could give lawyers grounds for lawsuits, her staff review each newsletter to make sure the event is related factually and without editorializing. "There's definitely a balance,'' she said. "We want people to know we are working to improve. But you want them to come here and feel safe and not come in the door and worry.'' Their goal is to tell of the problems they encounter in a more memorable way than a simple statistical report, so that the staff retain a greater understanding of the importance of the changes being introduced as a result. (Kowalczyk, 2013). - -Physicians take an oath, to do no harm. At it core is the belief that every patient has a right to complete autonomy, and that it is unethical for a physician to withhold information from a patient concerning any aspects of their condition or the potential positive or negative outcomes of a recommended treatment. This is in direct opposition to the traditional paternalistic views held by physicians in the past. Practitioners of medicine long considered themselves as the the givers of life saving treatment and patients as the recipients. This has its origins in the core of values defined by Hippocrates that relied on the fact that physicians had more information in the form of advanced knowledge about medicine than patients. This perspective gave them the right to make the decisions on the behalf of their less knowledgeable patients. His original precepts of medicine, which included 'do no harm', established the strongly paternalistic view that a patient had no need to know their current diagnosis. It was a cultural belief, not far removed from religion. Hippocrates lived in the 5th century BC, and his version of the physicians oath guided medicine (with many modifications designed to keep it in contemporary terms) until this century, when a sense of ethics began to change medicine and challenge the paternalistic physician view. (Garrett, 2010) - -In 1964, Louis Lasagna (while serving as the Academic Dean of the School of Medicine at Tufts University) wrote a new oath for doctors that is used in many medical schools today. Lasgana's oath, in part, states "I will remember that there is art to medicine as well as science, and that warmth, sympathy, and understanding may outweigh the surgeon's knife or the chemist's drug. I will not be ashamed to say "I know not," nor will I fail to call in my colleagues when the skills of another are needed for a patient's recovery. I will respect the privacy of my patients, for their problems are not disclosed to me that the world may know. Most especially must I tread with care in matters of life and death. If it is given me to save a life, all thanks. But it may also be within my power to take a life; this awesome responsibility must be faced with great humbleness and awareness of my own frailty. Above all, I must not play at God. I will remember that I do not treat a fever chart, a cancerous growth, but a sick human being, whose illness may affect the person's family and economic stability. My responsibility includes these related problems, if I am to care adequately for the sick. I will prevent disease whenever I can, for prevention is preferable to cure. I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm." (Tyson, 2001) - -Prevention is preferable to cure. As medicine has become more and more complex, the quality of the health care services we receive as patients continues to increase. Yet with that increased complexity inevitably comes errors. The standard that we, as consumers of a very profitable segment of our economy, must insist on is a standard of excellence based on transparency. Errors must be examined to prevent them from recurring. To the 90% of hospitals still operating under the concept of profitability above all else, I challenge you... adapt to the new standards. Embrace changes being mandated regarding errors. Do not delay, do not hesitate, for your patients require it now. Our lives are the ones impacted by errors you choose to ignore and repeat. - -The Oath above contains strong words that I believe sum up the ethical principles of most doctors, and they bear repeating. "I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm." It is not just the oath a doctor swears to uphold, it is the ethical principle we insist that every HCO must uphold. We want them all to be like The Brigham, and embrace the changes that are coming. We are fine with them making a profit, they deserve to do so in exchange for the services they provide and the financial risks they take in doing so. At the same time, we are becoming more educated about the choices they make in pursuing that profit, and we can not and do not have to tolerate profit from errors. - -Do no harm, or at least make no profit from it when you do. - -